What really moves an Israeli? In many cases it’s a “company car” – or any car provided by an employer to an employee (rechev tsamud).
You never see abandoned company cars by the roadside. This is because the drivers remember to fill them up with fuel, oil and water, and service them periodically, usually at the employer’s expense. On the tax side, there are a few more things you must remember to do.
When an employer provides a car to an employee in Israel, the employee pays tax on the deemed benefit – known as “usage value” (shovi shimush). This amount is added to the monthly salary on the payroll and on your paycheck.
Usually the employee uses the car partly for business purposes, partly for private family purposes.
Unlike some countries, Israel does not require anyone to track the
individual operating costs and distance travelled on business for each
car. Instead a system of approximations is used, which has been changing
over the last few years.Pre-2010 cars
If your car was
first “put on the road” by the end of 2009 according to the vehicle
license, the deemed usage value depended on which price group the car
In 2010, the monthly usage values for vehicles put on the road by the
end of 2009 were as follows: group 1 – NIS 2,140; group 2 – NIS 2,330;
group 3 – NIS 3,120; group 4 – NIS 3,770; group 5 – NIS 5,220; group 6 –
NIS 6,750; group 7 – NIS 8,650; and motorbikes over 125 c.c and over 33
horse power– NIS 840.
For 2011, the usage values have been increased by over 10 percent and so
there will be more tax to pay. The monthly usage values for vehicles
put on the road by the end of 2009 are now as follows: group 1 – NIS
2,580; group 2 – NIS 2,790; group 3 – NIS 3,590; group 4 – NIS 4,310;
group 5 – NIS 5,970; group 6 – NIS 7,730; group 7 – NIS 9,950; and
motorbikes over 125 c.c and over 33 horse power– NIS 860.
For example, if your employer provides you with a Mazda 3 company car,
which was put on the road by the end of 2009, it should belong to group 2
and you are taxed in on a deemed monthly usage value of NIS 2,330 in
2010 and NIS 2,790 in 2011. This is treated as additional salary income.
If you receive the use of the car net of tax, these figures have to be
grossed up. If you pay 45% income tax and 12% national insurance, the
grossing up more than doubles the taxable benefit.Post-2010 cars
For cars first put on the road in 2010 onwards, a different system
applies. It is based on the specific car model, not a price group.
Each car model has its own code number, which is shown on the vehicle
license. In 2010, the monthly usage value is 2.04% of the new car retail
price that is up to NIS 130,000 and 2.48% if that price is above NIS
130,000. The new car retail price is taken from the notification by the
importer to the Israeli Tax Authority and takes no account of any
equipment extras you may add or any price reduction you may negotiate.
You can find out what the retail price and deemed usage value is for any
model by visiting a website of the Israeli Tax Authority at:
For example, if your employer gives you a Mazda 3 company car, which was
put on the road in 2010, (manufacturer’s code 0588, model code 0371),
the above website reveals that it’s retail price is NIS 124,500 and you
were taxed in 2010 on a deemed monthly usage value of NIS 2,540. In
2011, the deemed monthly usage value for a 2011 model of that car has
gone up to NIS 3,090. But some models of the Mazda 3 are taxed
differently according to the website, so you must check for your
specific model code and year.
Given all these inflationary updates, wage clerks will be busy looking
up the latest deemed usage value for each and every company car when
calculating the January 2011 payroll and taxes thereon.
The deemed usage value assumes your employer pays for all the running costs – fuel, maintenance, etc.
If the employee pays these costs out of his own pocket, the taxed usage value doesn’t change.Hybrid cars
In the case of hybrid cars which are partly electrically driven, special
rules reduce the above taxable car usage values by NIS 530 per month in
Suppose you own your own company. Should you let the company own the car
or buy it yourself? This might seem a good idea if you are a new
immigrant and can buy a car at a reduced price. On the other hand, fuel
and maintenance reimbursements by the company to you are taxed as
additional salary. And the amount has to be grossed up. Suppose you are
taxed at a rate of 45% paying 12% national insurance and want the
company to reimburse a NIS 200 petrol bill you incurred. The company
must record a gross salary payment of over NIS 400 to cover income tax
and national insurance and reimburse you the NIS 200 you shelled out.What expense deduction does the firm get?
Employers may deduct all expenses of cars made available to an employee.
In addition, the expenses of “operational vehicles” are fully
deductible if the car is used to generate income but is not allocated to
any specific employee.
However, self-employed independent contractors will be allowed to deduct
the higher of: (1) total car costs minus taxable car usage benefits
taxed to employees, or (2) 45% of the total car costs.
As always, consult experienced tax advisors in each country at an early stage in specific cases.[email protected] Leon Harris is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.